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Volvo Posts Sharp Drop in 3Q Profits

World number two truck maker Volvo posted a sharp drop in third-quarter profit, hit by a strong Swedish currency and the costs of its biggest ever introduction of new models.

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Volvo, Sweden's largest private-sector employer, also said on Friday it will cut 2,000 jobs as part of a plan announced in September to generate annual savings of 4 billion Swedish crowns.

The cuts, which represent just under 2 percent of the Gothenburg-based company's workforce, will affect white-collar staff and consultants and come as the European truck market makes a modest underlying recovery.

Volvo, which sells under the Renault, Mack and UD Trucks brands, is in the middle of rolling out more than a dozen new Volvo and Renault models ahead of tougher new vehicle emissions rules.

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This is putting pressure on its production systems, which are making old and new models in parallel. As a result, the group missed out on a spike in demand for cheaper, older models before the emission rules come into force at the year-end.

Volvo, which vies for market leadership by trucks sold with Germany's Daimler, said third-quarter orders rose 11 percent in Europe, its biggest market. Total orders rose 7 percent, short of a forecast 31 percent rise.

"The available (production) slots for 2013 for (older) Euro 5 trucks from Volvo were sold out during the third quarter, which had a dampening effect on order intake," the company said, adding orders at Renault suffered in a similar way.

Unlike Volvo, Scania is only adapting engines to meet the new emissions rules rather than completely overhauling its truck range.

"If we look at Daimler and Scania during the quarter, they had better order intake. Volvo has no different underlying market than Daimler and Scania have in for example Europe," Handelsbanken Capital Markets analyst Hampus Engellau said.

CURRENCY HIT

Volvo's core operating earnings fell to 2.50 billion crowns ($392.9 million) in the third quarter from a year-ago 3.48 billion, well below a forecast 3.34 billion in a Reuters poll of analysts.

The company said the strength of the Swedish crown against currencies in emerging markets where it generates roughly a third of sales but produces far less, had shaved just over 1 billion crowns off earnings.

Volvo declined to put a figure on costs related to its new models, which it said would depress earnings for the next two quarters.

"In the short term, profitability is impacted by an elevated cost level related to all the launches, the change-over to new products and the fact that we currently are producing both the old and the new generation of products," Volvo said.

Chief Executive Olof Persson told a news conference order intake so far indicated a "normal" first quarter for its Volvo brand while Renault was likely to suffer continued weakness.

Deliveries of the older Euro V trucks will run down in Europe next year while a sales boom in Brazil could also peter out if the government incentives underpinning it are not fully renewed.

Volvo, which also makes buses, construction equipment and engines, trimmed its forecast for the North American truck market this year said it expected most markets to run at about the same level in 2014 as in 2013.